19 Apr

Preventing Affiliate Fraud: A Process for Processors

By: Greg Baxley, Marketing Coordinator

 

Affiliate marketing is on the rise as merchants seek new methods and better tools to improve their marketing reach, broaden brand exposure and increase overall revenue. In order to stand out from a multitude of competing online marketplaces, affiliate programs can offer sellers an easy way to entice new traffic. Ben Grossman, managing director at Pinpoint Intelligence, recently discussed the risks of affiliate partnerships and fraud at the MAC Annual Conference.

 

The partnerships created in affiliate programs appear to be a win-win for everyone involved. But the business of managing affiliates can be tricky, and rife with fraud. Affiliate fraud occurs when an affiliate abuses the commission based advertising model by “farming” clicks, or initiating fraudulent purchases to collect commissions. The main types of affiliate marketing are organic SEO, paid search, email marketing and content marketing.

 

The players in this space include networks, publishers, advertisers, merchant processors and fraud and chargeback reductions companies. The call-to-action is sales, with rewards including revenue increases, exposure and expanded reach into new markets. But with reward comes risk. These risks can include lack of control, unknown target audiences and fraud. An independent study conducted by Ernst & Young LLP reported that $4.8 Billion was lost to affiliate fraud in 2015.

 

Fraud Tip-offs

The difference between profit and loss can hinge on any number of factors, and it’s important for processors to understand the process for preventing potential fraud. The first step is tracking and understanding your data in real time to determine root causes, cut fraud losses, minimize chargeback risks and increase profitability. Monitoring campaign variable tracking codes including Publisher ID (PID), Site or Sub ID (SID) and Customer or Campaign ID (CID) in reporting is essential to finding anomalies. There are many companies that offer reporting interfaces. G2 Web Services recommends looking into affiliate protection technology, which can help you gain transparency into each transaction, allowing you to isolate and put a stop to affiliate fraud at the source. Understanding where the transaction started and how it arrived at the merchant’s website are key steps in determining the likelihood of a transaction being associated with fraud.

 

The PID (also known as Pub ID or Affiliate ID) is a unique number that identifies the publisher on a network. It tracks impressions and clicks referred from a publisher’s website (see Figure 1). The SID (or Sub ID) is a tracking code that helps affiliates, advertisers and networks keep track of users by associating unique values to each individual user or effort. This tracking is critical in helping you determine which affiliate links on your site are working and which aren’t, rather than using a generic link site-wide that only shows you what your website makes as a whole with each program. The CID (or Campaign ID) is a unique tracking pixel associated with each account.

 

By examining these numbers and codes, we can begin to assess risk. Which of these sources is higher risk? To eliminate the guessing game, we must monitor the sources.

 

Often the Pub IDs look the same. But upon inspection, the SID, CID and CB (Chargeback) Ratio within each Pub ID can be telling. You must peel back the layers and search for anomalies. In one case, we found that the suspect SID has a significantly higher Chargeback Ratio, with a Risk ID value that stood out from the rest (see Figure 2).

 

Figure 1

 

PUBID_SUBID_CampaignID_CBratio table

Figure 2

 

Another fraud tip off is a surge in transactions within a short period of time, or initially after the partner is signed up. A surge like this, accompanied by high conversion rates, the likelihood of fraud is even greater.

 

A chargeback occurs when a consumer or bank disputes a credit card transaction approved by a merchant, often due to fraud, and the merchant must return the value of the charge to the bank that issued payment. For each chargeback, the issuing bank — the bank that issued funds to cover the cardholder’s charge — provides a chargeback code to the merchant. Chargeback ratio is a measure of how many chargeback claims a merchant pays compared to the total number of transactions the merchant processes. A chargeback ratio too high can lead to fees or higher costs from acquiring banks. Chargeback ratios in the 5%+ range can signify problem cases.

 

There is no need to be an analyst to uncover the truth with the right data, you just need to have a clear understanding of what to look for. Divest yourself from high chargebacks and unprofitable affiliates. In most cases merchants are willing to pay higher commissions to attract legitimate affiliates and avoid the headaches of the bad actors. The rewards far outweigh the risks for both acquirers’ and merchants when managing traffic, the right way. Today’s marketplace offers a number of tools and solutions to help those involved to make smarter decisions, improve their businesses and remain profitable.

 

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